Review

• Malakoff Corporation Berhad’s (MALAKOF) 1HFY24 result came in ahead of ours but within consensus expectations. Excluding exceptional items, the group’s 1HFY24 core net profit of RM138m accounted for 62% and 53% of ours and consensus full year estimates respectively. The outperformance came mainly from stronger-than-expected performance at Tanjung Bin Power (TBP) and Tanjung Bin Energy (TBE).

• QoQ: MALAKOF reported a 22.1% QoQ rise in core net profit driven mainly by improved contribution from TBP. This is despite a reduction in associate earnings contribution (comprising mainly its overseas water assets), which fell 18.8% QoQ.

• YoY: Earnings swung from a core net loss of RM325.3m to a core net profit of RM76.1m in 2QFY24 driven by improved contributions from the TBP and TBE plants given absence of negative fuel margin during the period. Coal prices have stabilised, and we reckon this stability in fuel margin dynamics is sustainable. In addition, the improvement in 2QFY24 earnings was driven by lower finance cost (-17.8% YoY).

Impact

• No change to our earnings forecasts pending an analyst briefing later today.

Outlook

• Power Generation: Newcastle Coal prices have remained relatively stable since June last year, suggesting that the worst of negative fuel margin is over. Earnings for the division may be temporarily affected in the following quarter given expiry of Prai Power Plant’s (PPP) original PPA in June 2024 but commencement of a short-term 1-year extension on 1 September 2024 should address this from 4QFY24 onwards.

• For its non-thermal power generation business, MALAKOF had announced the proposed acquisition of the remaining 51% stake in ZEC Solar (owner of 29MW LSS asset in Kota Tinggi, Johor) and the remaining 49% stake in TJZ Suria (operates and maintains ZEC’s LSS asset in Kota Tinggi). The conditional period of the share sale and purchase agreement has been extended for a period of 3 months to 22 November 2024. Overall, we believe the acquisition will unlikely be material to MALAKOF’s bottom-line.

• Environmental Solutions: Cut-off date for the acquisition of 49% stake in E-Idaman was extended for 3 months to 28 October 2024. Once completed, E-Idaman is expected to contribute additional 3%-4% to MALAKOF’s bottom-line for FY25-FY26. We expect segmental earnings to be stable QoQ in 3QFY24.

• We place our TP (RM0.80/share based on SOP valuation) and Hold rating under review pending an analyst briefing later today.

Source: TA Research - 29 Aug 2024